Foreclosure and preforeclosure are two terms that are commonly used in the real estate industry. While these terms may sound similar, they have very different meanings and implications for both homeowners and potential buyers.
What is Foreclosure?
Foreclosure is a legal process that occurs when a homeowner is unable to make their mortgage payments. When a homeowner falls behind on their mortgage payments, the lender can initiate foreclosure proceedings, which can ultimately result in the loss of the home. Foreclosure is a serious event that can have long-lasting consequences for homeowners, including damage to their credit score and difficulty obtaining future loans.
What is Preforeclosure?
Preforeclosure, on the other hand, is a critical window of opportunity that occurs before formal foreclosure proceedings have begun. During this phase, the homeowner in Ohio has fallen behind on their mortgage payments—usually by 90 days or more—but the lender has not yet filed a Notice of Default or started the legal foreclosure process. While this can be a stressful time, it’s also a chance for homeowners to take proactive steps to avoid losing their home. Many lenders are open to working with borrowers during preforeclosure, offering options such as loan forbearance, repayment plans, mortgage refinancing, or a loan modification to help get payments back on track. For those unable to keep the home, alternatives like a deed-in-lieu of foreclosure or a short sale—where the property is sold for less than what is owed with the lender’s approval—can help minimize long-term credit damage. Acting quickly during preforeclosure not only improves your chances of reaching a favorable resolution, but it also puts you in a better position to protect your financial future, reduce stress, and preserve equity in your home.
The Timeline
One of the key differences between foreclosure and preforeclosure lies in the timeline and what each phase means for the homeowner’s options. Foreclosure is a formal and often lengthy legal process that can take several months—or even years in some cases—depending on state laws and court backlogs. During this period, the homeowner may still be allowed to remain in the home while pursuing options to catch up on missed payments, negotiate with the lender, or explore legal defenses. However, once the foreclosure is finalized, ownership of the property is legally transferred—often through a public auction or sheriff’s sale—and the homeowner will be required to vacate, sometimes facing eviction if they remain past the deadline.
Preforeclosure, on the other hand, is a more time-sensitive stage that occurs before the legal foreclosure process begins. Typically lasting only a few months, preforeclosure starts when the homeowner has missed several mortgage payments but has not yet received a formal Notice of Default. This phase presents a vital opportunity to take action. Homeowners in Ohio can potentially avoid foreclosure altogether by working with the lender to secure a loan modification, pursue a short sale, or even refinance if their financial circumstances allow. While preforeclosure is shorter in duration, it offers more flexibility and control—making it a critical time to act decisively and seek guidance before the situation escalates.
Long Term Effects
Another key difference between foreclosure and preforeclosure is the level of damage each can do to a homeowner’s credit score—and the long-term financial consequences that come with it. Foreclosure is considered one of the most damaging events that can appear on a credit report. It can cause a drop of 100 to 160 points or more, depending on the homeowner’s credit history, and it remains on the report for up to seven years. This can make it extremely difficult to qualify for new credit cards, auto loans, or home mortgages in the future. Even when credit is extended, it typically comes with much higher interest rates and less favorable terms. Additionally, some employers, landlords, and insurance companies may view a foreclosure as a red flag when making decisions.
Preforeclosure, while still serious, often carries a lesser credit impact—especially if the homeowner takes proactive steps to resolve the issue. Missed mortgage payments will still hurt your score, but if you’re able to negotiate a loan modification, short sale, or repayment plan with your lender before the foreclosure is officially filed, you can potentially avoid the full weight of a foreclosure mark on your credit report. In some cases, resolving the issue during preforeclosure may allow you to rebuild your credit more quickly and retain more control over your financial future. Acting early and communicating with your lender during preforeclosure can make a significant difference—not just in keeping your home, but in protecting your long-term credit health.
Buying Properties in Foreclosure or Preforeclosure
For potential buyers, there are also important differences between foreclosure and preforeclosure. Foreclosed properties are typically sold at auction, and buyers must be prepared to pay cash or obtain financing quickly in order to purchase the property. Additionally, buyers may need to deal with issues such as liens, unpaid taxes, or evictions.
Preforeclosed properties, on the other hand, may be available for sale through a short sale. During a short sale, the homeowner sells the property for less than the amount owed on the mortgage, and the lender agrees to accept the proceeds as payment in full. Short sales can be a good option for buyers who are looking for a deal, but they can also be time-consuming and unpredictable.
Foreclosure and preforeclosure are two distinct terms that have different implications for homeowners and potential buyers. Foreclosure is a legal process that can result in the loss of a home and can have long-lasting negative effects on a homeowner’s credit score. Preforeclosure, on the other hand, is a period of time before foreclosure proceedings have begun that can give homeowners an opportunity to work with their lender to find a solution to their financial difficulties. For potential buyers, foreclosed properties are typically sold at auction, while preforeclosed properties may be available for sale through a short sale. Understanding the differences between foreclosure and preforeclosure can help homeowners and buyers make informed decisions about their real estate options.
What Are My Options?
To stop your house from going into foreclosure, you’ll either need to get rid of the property or find a way to increase your income so you can better afford the mortgage. Frankly, owning your home shouldn’t feel like a struggle each month. You should be able to feel confident in the ownership of your home. If your mortgage has become too much to handle, it may be time for you to find an alternate solution.
How Wright Home Offer Can Help With Foreclosure
If you are struggling with your monthly mortgage, Wright Home Offer is able to buy your property outright. We will make you an offer and close on the property when you are ready. At Wright Home Offer, we help local homeowners get out of their difficult situations once and for all. If you are struggling with a house you can no longer afford, reach out to our team today to learn more about the options available to you. We are happy to answer any questions you have about the process. 937-998-4239